Dive Brief:
- Honeywell exceeded expectations in its first fiscal quarter of 2024, growing sales of its Connected Enterprise offerings by over 20%, led by building and cyber offerings, according to an earnings release Thursday.
- The company’s energy and sustainability solutions segment grew 5% organically year-over-year in the first quarter of 2024 to $1.52 billion, offsetting a 3% organic year-over-year decrease in its building automation segment, where revenues dropped to about $1.43 billion in the quarter. Honeywell’s industrial automation business sales organically fell 13% year-over-year. This decline is primarily due to lower volumes in warehouse and workflow solutions, “as investments in warehouse automation remains subdued,” Greg Lewis, senior vice president and chief financial officer at Honeywell, said on an earnings call Thursday.
- Despite the revenue decline in its building automation segment, building solutions “continues to be a bright spot, with double-digit growth in projects and another quarter of growth in services,” the company said in the release.
Dive Insight:
Within its building automation segment, strength in the company’s building solutions growth was offset by building products, where lower volumes led to sales declines across fire, security and building management systems, per the release. The segment’s margin decreased 120 basis points to 24%, slightly above the levels seen in the fourth quarter of 2023. Lewis attributed the decline in its segment margin to a mix of “headwinds from softer product volumes and cost inflation, partially offset by productivity actions and commercial excellence.”
Despite the organic year-over-year decline in Honeywell’s building automation segment, Lewis said the company had a strong quarter of growth in its long-cycle building solutions business as it “worked through the volume challenges and short-cycle building products area.” Solutions grew 7% in the quarter “led by double-digit growth in building projects, which was driven by strong execution of its backlog,” Lewis added.
Building automation orders saw a sequential improvement in the first quarter, which Lewis attributed to a “seasonal lift” in building services and a “modest improvement in fire,” resulting in an overall book-to-bill ratio of 1.1 for the segment.
Honeywell also said that growth across its portfolio was supported by another quarter of double-digit sales growth in its Honeywell Connected Enterprise business, which Lewis noted was “a powerful indicator of our strong software franchise powered by our differentiated Forge AI IoT platform.”
Lewis added that Honeywell’s offerings in “cyber, life sciences and connected industrials” grew more than 20% year over year in the quarter and that HCE continues to generate accretive growth and profitability for the company.
Looking ahead, the building automation segment is expected to lead Honeywell in margin expansion, followed by industrial automation and energy and sustainability solutions segments, Lewis said. Honeywell projected that industrial automation will remain roughly flat on a sequential basis in the second quarter, and Lewis noted that growth in process solutions could be offset by warehouse automation demand “that remains near trough levels and the end of the $45 million quarterly license and settlement payments we have received for the past two years in our productivity solutions and services business.”
Lewis said Honeywell expects warehouse and workflow solutions to improve as the company moves through the trough of warehouse automation spending.
Meanwhile, building automation sales are expected to improve sequentially as “the channel further normalizes and our long-cycle businesses continue to benefit” from a strong backlog and aftermarket services tailwinds, Lewis noted.
Within its energy and sustainability solutions segment, Honeywell’s advanced materials business, which includes air conditioning, refrigeration and heating products, grew sales growth 6%, primarily driven by another quarter of double-digit improvement in fluorine products, the company said.
Honeywell’s overall sales grew 3% year over year, reaching $9.1 billion in the quarter, with its backlog increasing 6% year over year to $32 billion. The company remains aligned to “three powerful megatrends — automation, the future of aviation, and [the] energy transition, all underpinned by digitalization,” Honeywell CEO Vimal Kapur said in the earnings release.
